The economic effects of rural hospital closures

Abstract

Objective: To provide an updated analysis of the economic effects of rural hospital closures.

Study setting: Our study sample was national in scope and consisted of nonmetro counties from 2001 to 2018.

Study design: We used a difference-in-differences study design to estimate the effect of a hospital closure on county income, population, unemployment, and size of the labor force. Specifically, we compared economic changes over time in nonmetro counties experiencing a hospital closure to changes in a control group of nonmetro counties over the same time period. We also leveraged insight from recent research to control for estimation bias due to heterogeneity in the closure effect over time or across groups defined by when closure was experienced.

Data extraction: Data on (adjusted gross) annual income (in real dollars), annual population size, and monthly unemployment rate and labor force size were sourced from the Internal Revenue Service, Census Bureau, and Bureau of Labor Statistics, respectively. We used data from the North Carolina Rural Health Research Program to identify counties that experienced a hospital closure.

Principal findings: Of the 1759 nonmetro counties in our study sample, 109 experienced a hospital closure during the study period. Relative to the nonclosure counterfactual, closures significantly decreased labor force size, on average, by 1.4% (95% CI: [-2.1%, -0.8%]). Results also suggest that Prospective Payment System (PPS) hospital closures significantly decreased population size, on average, by 1.1% (95% CI: [-1.7%, -0.5%]), relative to the nonclosure counterfactual.

Conclusions: Our analysis suggests that rural hospital closures often have adverse effects on local economic outcomes. Importantly, the negative economic effects of closure appear to be strongest following Prospective Payment System hospital closures and attenuated when the closed hospital is converted to another type of health care facility, allowing for the continued provision of services other than inpatient care.

Keywords: health economics; hospitals; rural health.